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The government last week cleared the setting up of the 7th Central Pay Commission for its employees. The move may be prudent politically but it will add to the problems of the next government which will also be burdened with the impact of the Food Bill on financial and the Land Bill on investment.

The CPC recommendations, which will be implemented from January 2016 have to be handled properly—implementation of the 6th CPC recommendations threw fiscal deficit out of gear for two years, FY09 and FY 10. Though there will be no arrear burden this time as 7th CPC recommendations can be implemented from the due date itself—CPC is constituted every 10 years and 6th CPC recommendations were implemented from 2008 instead of 2006—the new pay structure itself will add to the government woes, especially at a time when the government is expected to be considerably cash-strapped for an extended period of time. The 12th five-year-plan average growth rate is unlikely to surpass even 6%.

A close look at the composition of the central government staff and pay structure clearly indicates there is not much that the government can do (or be willing to do) as far as curtailing the expenditure on this account is concerned. But what the CPC can do certainly is target hikes better to reward performers. A transparent and effective performance-linked pay system devised carefully, rather than the current token one, can be a catalyst for improving the government functioning.

The 6th pay commission recommended variable increments for Group A, where annual increments in the band will vary depending upon the performance. Eighty percent or more employees in the grade are now allowed normal increment at the rate of 2.5% with the high performers (not exceeding 20%) during the year being allowed increment at the higher rate of 3.5%. The government advised to extend the scheme of variable increments in other pay bands also. This system needs to be scaled up now to the next level.

Then, it had also suggested the introduction of performance related incentive scheme (PRIS) in the government under which employees would be given pecuniary remuneration over and above the pay, replacing the ad hoc bonus scheme.

The cabinet secretariat has developed result framework document (RFDs) and the ministries and departments have engaged themselves into this exercise which is being monitored now on a regular basis. According to the plan, at the end of